Lewis Road Creamery: International Market Analysis and Entry Strategy

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Table of Contents

Executive Summary
Organisation
Product
International Market Opportunity Analysis
Market Description
Market Entry Strategy
References

Executive Summary

This report is devoted to Lewis Road Creamery’s new chocolate liqueur and its international marketing. The product is produced in New Zealand, and the company places the major value on environmental and social sustainability. The most attractive target market is China due to the economic development of this country and some existing and emerging trends. China is a preferable market due to the considerable population, high and increasing population income, growing Chinese people’s alcohol consumption rate, their focus on sustainability, and the favourable legislative landscape of alcohol beverages sales.

Lewis Road Creamery should employ the product-driven market entry approach due to the peculiarities of the chocolate liqueur. The product is unique and has characteristic features that are consistent with the current trends in the Chinese society. Direct exports can help the company market the new beverage as this strategy requires a comparatively small investment and can help in reaching a considerable audience. The organisation should also utilise digital advertising campaigns and social networks to market the product.

Organisation

Lewis Road Creamery is one of the producers of dairy products in New Zealand. The organisation was founded in 2011, and it produces fresh flavoured milk, ice cream, butter, chocolate butter, chocolate milk, and alcohol drinks (Bloomberg, n.d.). In 2014, the company introduced its new product, chocolate milk that became a hit in New Zealand (Lin, 2016). Two years later, Lewis Road Creamery started the production of chocolate liqueur (Clayton, 2017). The key competitors of the company under analysis include Fonterra, The a2 Milk Company, and Nestle that are all dairy products producers operating in New Zealand and other markets.

The primary strengths of the mentioned competitors include their size, available resources, operations in different markets (such as Australia, China, and the UK, to name a few). One of the weaknesses Fonterra has is its involvement in the product safety scandal in the 2010s (Zhao & Sriramesh, 2018). One of the weakness of The a2 Milk Company is a limited diversity of its product range. Nestle has been a target of criticism and even litigation related to various social issues.

The primary strengths of Lewis Road Creamery are its commitment to sustainability, innovation, and diversity. The company concentrates on the delivery of natural products free from GMO, hormones, or palm oil (“Grass-fed & traditionally churned artisan butter,” 2019). Comparatively limited resources the company can invest in the entrance to new markets is a considerable weakness, and the organisation has to develop effective strategic plans with careful consideration of any new move. Lewis Road Creamery mainly operates in New Zealand, but its butter already entered the US market in 2018 (Burke, 2018).

Clayton (2017) reports that the organisation plans to enter such markets as the UK, Australia, and China although some challenges have to be addressed. The company is developing effective strategies to ensure the entrance of certain products into these markets.

Product

Lewis Road Creamery can benefit from introducing its chocolate milk, butter, and liqueur to the international market. These products have gained popularity in New Zealand and have the potential to become profitable in other countries. One of the primary competitive advantages of these products is the focus on natural production and new flavours and recipes (“Grass-fed & traditionally churned artisan butter,” 2019). The organisation should concentrate on these aspects when marketing the items in the international market since consumers are now concerned about the environment (as well as social) footprint of manufacturers while seeks new flavours and experiences. The product that can have the most favourable position in the market is the chocolate liqueur.

Although chocolate milk has proved to be a hit in New Zealand and could become popular in the international market, its delivery to the consumer is rather problematic due to the short shelf life of the product. Moreover, many countries (including Australia and China) have rather strict regulations that prevent various foreign dairy product manufacturers from entering their markets (Clayton, 2017). It is noteworthy that New Zealand exports of dairy products reached $15.17 billion in 2019 (“New Zealand trade dashboard,” 2019). On the one hand, the quality of New Zealand dairy products is well-known and valued in the world.

On the other hand, it can be difficult for new companies to enter the international market as it can be difficult to occupy its niche due to quite fierce competition. Therefore, it is important to choose some innovative approaches and products, such as the company’s new chocolate liqueur. The shelf life of this product is considerable, and logistics-based issues can be addressed effectively. Unique recipes and commitment to sustainability can make the new alcohol drink popular in many countries.

International Market Opportunity Analysis

The company can consider entering the Australian, Chinese, and Japanese markets. In order to identify a new market to enter, it is necessary to analyse key success factors. Primary success factors are associated with social, economic, political, and cultural peculiarities of the target market and differ in terms of the industry and the type of the product (Aaker & Moorman, 2017). As far as the product in question is concerned, the following key success factors can be identified: consumer income level, alcohol drinks consumption, legal environment, and logistics. Consumer income level holds the highest value for promoting chocolate liqueur in a new market (see Table 1).

People’s income correlates with their ability and willingness to buy new and comparatively expensive alcoholic beverages. The alcohol consumption rate is another important success factor that is important to consider. This rate is different across countries, so it is beneficial to enter a market characterised by a high (and/or increasing) alcohol consumption rate. Legal environment and logistics are equally important as companies should make sure that their product marketing will not be linked to legal violations and that delivery costs will not be high.

Table 1. Success Factors Analysis.

Success Factor Criteria	Importance Weighting	China Score	Weighted Score	Japan Score	Weighted Score	Australia Score	Weighted Score
Consumer income level	0,4	4	1,6	2	0,8	3	1,2
Alcoholic drinks consumption	0,3	3	0,9	4	1,2	1	0,3
Legal environment	0,15	2	0,3	3	0,45	2	0,3
Logistics	0,15	1	0,15	1	0,15	4	0,6
Total	1	10	2,95	10	2,6	10	2,4

When comparing the countries in question in terms of the income level factor, China seems the most attractive market as the consumer income level is on the rise (6.5%) for a prolonged period (Reuters, 2019). Although the increase has slowed down, the consumer income level growth rate is still higher than the corresponding rates of Japan (0.8%) and Australia (1.7%) (Organisation for Economic Co-Operation and Development, 2018).

The consumption of alcoholic drinks is facing an increase in Japan (+11.2%) and China (+4.2%), while Australian alcoholic beverages consumption rate is decreasing (-14.4%) (McCarthy, 2019). Regarding transportation-related issues, Australia is the closest country with well-developed infrastructure, while Japan and China are more distant. The analysis shows that China is the preferable market that should be targeted at this point of the organisation’s development. Lewis Road Creamery should enter the Chinese market as its chocolate liqueur can become popular due to the social and economic trends that are taking place.

Market Description

China has become one of the most attractive markets for various companies. This country is the second economy in the world, with a population of almost 1,4 billion people and one of the so-called Asian Tigers (Zheng & Huang, 2018). The country is rich in natural resources that have been extensively used to develop such industries as manufacturing, mining, and energy. The country exports communication technologies, machinery, petroleum, iron ore, agricultural products, and gold. Urbanisation has been a characteristic feature of the country’s development for several decades. The value of China’s imported food products and beverages was over $58 billion in 2016 (Koe, 2018). Some of the primary importers of this category of goods include the USA, the EU, New Zealand. Therefore, Chinese people are aware of the quality of New Zealand dairy products, and the company in question will be able to use this popularity as their competitive advantage.

Although urban household income growth dropped from 6.6% to 5.6% in 2018, consumption per capita reached 6.2% (Reuters, 2019). Urbanisation is associated with certain shifts in the ways people communicate and spend their leisure time. These transformations are favourable for the company’s plan to market chocolate liqueur as this product can be popular among cities’ population. The marketing strategy should be consistent with the demographic profile of the target country. The standards of living are improving at a significant pace. For example, healthcare costs saw a substantial increase and became as high as 8.5% of the total expenditure in 2018 (Reuters, 2019). The country shows remarkable economic growth despite a certain slowdown.

China’s GDP per capita increased by over 6% in 2018, while many countries in the western world showed considerably lower growth rate (Reuters, 2019). One of the factors contributing to such positive results is the government’s focus on economic growth. The country made an unprecedented leap regarding the ease of doing business rating and became 46^th in 2018 as compared to 78^th in 2017 (The World Bank, 2019b). Conerly (2017) notes that the Chinese currency exchange rate has been comparatively stable and reached 6,8 in 2017.

The government of this country also announced to launch a stricter currency policy, which had a positive influence on its economic development. The inflation was quite low and has fluctuated at approximately 2.5% in recent years and was as high as 2.9% in 2018 (The World Bank, 2019a). Although China is the most populous country in the world, the nation is aging at rather a high pace, which can have substantial adverse effects on its development. This demographic trend means that the country’s labour force is shrinking. Almost 90% of the population have a secondary school education (The World Bank, 2019a). Demographic features of the nation also have a positive impact on the country’s growth, but certain negative trends are becoming more apparent.

The Chinese government has started introducing stricter regulations related to environmental issues, which has a favourable effect on the country’s environmental landscape (Zheng & Huang, 2018). The public opinion on the matter is also changing as Chinese people are becoming more environmentally conscious. Therefore, Lewis Road Creamery will have a competitive advantage due to its focus on environmental sustainability and social responsibility.

As far as the legal environment associated with alcoholic drinks, it is characterised by common restrictions in such domains as taxes, advertising, and drink-driving legislation (Guo & Huang, 2015). As far as other limitations (for example, price, the density of alcoholic outlets, alcohol-free environment, or warning labels) are concerned, they are not used in China. This legal landscape offers various opportunities for marketing and selling Lewis Road Creamery chocolate liqueur.

Finally, Chinese culture does not have a negative perspective regarding alcoholic beverages. The country has its own traditional high-spirited drinks, and liqueurs are rather popular among Chinese people pertaining to different age groups (Zheng & Huang, 2018). Family gatherings and other social occasions are characterised by the consumption of different types of alcohol beverages. Alcohol is also imported from different countries, including New Zealand (Koe, 2018). Hence, the organisation’s liqueur is likely to find its consumers in the Chinese market.

Market Entry Strategy

The company can consider utilising different market entry approaches, but product-driven and market-driven deserve specific attention. Product-driven perspective is preferable due to the peculiarities of the product. Unique products that have high added value can be marketed in terms of product-driven strategies. The focus is mainly on the product, although the peculiarities of the market are also analysed (Zheng & Huang, 2018). The advantages of this approach include the ability to use mass marketing, a significant number of customers, and potentially high revenue. The primary disadvantage of this strategy is the need to ensure the uniqueness of the product and its value to the customers.

This goal may require considerable investment due to the existing competition in the market. Lewis Road Creamery should choose this approach as its product is unique for the Chinese market, and the added value is consistent with the existing and emerging trends in the society.

The market-driven strategy is associated with the focus on flexibility, convenience, and the pace at which the product can be changed to suit customers’ needs. The advantage of this approach is the prospect of gaining a considerable market share (Zheng & Huang, 2018). However, this marketing method requires considerable investment as flexibility is the key factor ensuring customers’ loyalty. The Chinese market is characterised by certain fluctuations, so the organisation may need to introduce new features of services rather often, which is linked to additional financial burden and decreased profitability.

Lewis Road Creamery should also employ the direct exports market entry strategy due to a number of reasons. First, the company has comparatively limited resources, so the establishment of manufacturing facilities (which is associated with high risks) cannot be a short-term goal. Secondly, one of the competitive advantages of the product is the production method as grass feeding and intolerance of any potentially hazardous elements (GMO or hormones) are the company’s priorities.

The use of e-commerce can become a characteristic feature of the entry strategy. The focus should be made on retailers and HORECA segment, but online purchases should also be an available option. This strategy should also be facilitated by the extensive use of social networks and digital advertising campaigns. Such ideas as unique flavours, new experiences, and sustainability should guide this campaign. Lewis Road Creamery will manage to enter the Chinese market, and its products are likely to gain popularity in China if this market entry approach is employed.

References

Aaker, D. A., & Moorman, C. (2017). Strategic market management (11th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

Bloomberg. (n.d.). Lewis Road Creamery Ltd. Web.

Burke, P. (2018). NZ butter lands in the US. Dairy News. Web.

Clayton, R. (2017). Lewis Road Creamery heading to Australia, China, United Kingdom. Stuff. Web.

Conerly, B. (2017). China exchange rate forecast: More stable than headlines suggest. Forbes. Web.

Grass-fed & traditionally churned artisan butter. (2019). Web.

Guo, X., & Huang, Y. G. (2015). The development of alcohol policy in contemporary China. Journal of Food and Drug Analysis, 23(1), 19-29. Web.

Koe, T. (2018). China food and beverage imports rise, but experts warn against complacency from overseas brands. Web.

Lin, T. (2016). Lewis Road Creamery wins brand battle after Chinese businessman’s name claim. Stuff. Web.

McCarthy, N. (2019). Where global alcohol consumption is rising & falling. Forbes. Web.

New Zealand trade dashboard. (2019). Web.

Organisation for Economic Co-Operation and Development. (2018). Household disposable income. Web.

Reuters. (2019). China consumers squeezed in 2018 as income gains slow, living costs rise. Reuters. Web.

The World Bank. (2019a). Country profile. Web.

The World Bank. (2019b). Ease of doing business index. Web.

Zhao, D., & Sriramesh, K. (2018). Anatomy of a product safety crisis: Fonterra’s recall crisis in China. Asian Journal of Communication, 29(2), 149-163. Web.

Zheng, Y., & Huang, Y. (2018). Market in state: The political economy of domination in China. Port Melbourne, VIC: Cambridge University Press.

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